The Scottish referendum is somewhat off topic, but then again, what is Scotland, if not Evelyn Ward North? We may not have any vote on an issue that will affect everyone in these islands (a feeling the Scots will need to get used to if they do choose independence), but that's no reason not to discuss it here.

There is of course, a lot of bluff and bluster surrounding this issue, so let's start with what we know. There are some guaranteed consequences:

The uncertainty around the future of both countries will cause UK share prices and the pound to drop, while investment plans will get delayed or cancelled.

The disentanglement of two countries will lead to additional regulatory and cultural complexity, making supply chains more expensive, increasing the costs of doing business.

There will be doubling up of government services and administrative costs (everything from embassies to the DVLA, intelligence services to NICE) – losing the efficiencies of scale you get with a bigger country.

There are also some consequences which are not guaranteed but you’d be a fool to bet against them:

Borrowing costs on international markets will rise, pushing up the cost of financing public debt.

Some jobs, particularly in the financial sector, will leave Scotland and relocate elsewhere within the UK. It seems likely that in the early days of independence, this would be more like a trickle than a flood – a few thousand jobs. And of course, other parts of the UK would be beneficiaries.

It’s likely that trade between Scotland and the rest of the UK would decline from its historic levels. This will partly be due to the animosity that will follow the negotiations and partly due to the inevitable result of uncoupling our economies. Falling trade will make us all poorer.

Government revenues in Scotland will fall, requiring public spending cuts. The Scottish government may try to increase borrowing and will offer incentives to business (lower taxes) to increase oil production or relocate to Scotland, but these measures will take a while to have any effect. The best hope is that the global oil price rises to boost government coffers. In the meantime, the exodus of UK-funded jobs will make the loss of private sector jobs seem trivial.

Then, there are the costs that depend on political decisions that will follow the result:

There is no good reason to expect the UK to agree to a currency union with Scotland. Yes, without Scottish sales of whisky, salmon, oil and other key exports, the value of the pound will face a little downward pressure, but it’s strengthened in recent months in spite of a yawning trade gap. Many people consider that it is now too high. A bit of a fall in the value of the pound is a price worth paying to avoid having to underwrite the borrowing decisions of another country. Scotland can threaten to default on its share of the UK’s debt, but only once they have been given independence – at which point they have to choose whether starting life as the new Argentina is a smart move. With default a hollow threat, there is no other reason to expect currency union. Scotland will do a Panama and adopt a currency they have no control over. Higher borrowing costs are inevitable.

It seems sensible to assume that the EU will want Scotland back in at some point. But they will have a lot of member countries like Spain and Belgium who’ll not want to let them back in in a hurry. A period of some years outside the EU seems almost certain, hitting exports in the short-to-medium term. Once they do get back in, the Scots will have to adopt the Euro and surrender much of the independence they just paid a heavy price to secure.

These then, are the likely real costs that independence will bring. Nothing apocalyptic, but real, significant costs. As a result of them, we will all be poorer – but Scotland will potentially be hit very hard, while some UK communities, will get a boost from the transfer of things like shipbuilding and financial services to other locations.

Money isn’t everything of course and there are lots of other arguments for and against independence, but there can be no proper debate without accepting the reality of the cost of breaking up a major country with 300 years of close-knit connections.

In part two of this article, I’ll try to cover the central themes of the debate: Identity, Democracy, Values and the Economy.

40
comments:

Johanne
said...

I thought Brockley Central was a site for raising awareness of issues local to Brockley, not an outlet for Nick to air his personal politics. No Scot will be voting YES for an easy life on Thursday but for the right to have their decisions made by a parliament they have actually voted for.

As a Brockley resident who has got a little active in this discussion I thought I would pipe up.

The problem is that the question being posed to the Scottish people is "should Scotland be an independent country" and not "is the potential financial hardship of independence worth it, in the long run, to obtain unfettered control of our nations destiny". Economics is of course part of it, and it will cost money to devolve power but wont the new systems serve the Scottish people better?

Below is a little article I wrote for the Scotsman. I fully understand that money is important but isn't the indyref about a little more than that - I look forward to part two :)

A great article Barra! And apologies Nick, I shouldn't have snapped at you. The economics have been poured over in Scotland and by all us interested parties for the last 2 and a half years nobody has their eyes closed at this late stage. Looking forward to the next instalment too.

I see it less to do with emotion and dewy eye'd notions of 'national destiny'. more the consequences of party politics in the UK. The Conservatives lost the plot in Scotland long ago and Unionist sentiment was left leaderless. Labour also neglected its strong Socialist constituency. This has allowed the SNP to claim it is the best party to advance social justice and resist centralisation and market driven policies through independence.

Did the independence debate have much traction when Labour were in power, just a few years ago when we had a Scot in No. 10? It really would not have made much sense. This could only happen as a result of conservatives being in power and the Scots taking the opportunity to express their frustration at the social policies that are affecting the poor across the UK.

UK political parties are not in good shape and it is allowing maverick fringe parties to gain enough support to change the constitution and potentially wreck the economy.

Referendums ask very simple questions to an electorate unused to appreciating the intricacies of constitution, government and the economy. After Scottish independence, what next? A referendum about exiting the EU? You can parade many of the same arguments about sovereignty and independence from the imperious nature of the Continentals and a belief that we are somewhat superior. Pride before a fall.

We pay politicians to make sensible political decisions for us. They have abdicated that role and passed it the public in order to avoid responsibility. I fear it will go horribly wrong and there will be dire, ill considered consequences all round. The fate of the UK constitution should not be left to discussions in a domestic sitting room.

I see a future with a very glum Scotland and a depressed UK sitting seperate rowing boats somewhere in the mid Atlantic just as the weather turns nasty.

Which will be nice for the English to be represeneted by a parliament we voted for!Scotland can clearly exist as an independent economy but how they get there will not be easy. They will have to run a programme of austerity which is much much more restrictive than the current UK government's policy. I also think the Scots under appreciate how hard the English voters will be on them. There will be no votes to be had in English elections with promises of compromise with out tiny inward looking nationalist friends to the North. How depressing is European politics at the moment with the rise and rise of racist (I'm looking at you SNP), nationalist parties of the hard right and left in Scotland, Sweden, France, Italy etc. They make you almost glad we only have UKIP!

The Scots get their vote if they vote no, after 1 - 2 years there's an uprising of people opposed to the SNP. The English government will ferment trouble through social media such as Irn Bru and Whiskey.

As the protests grow louder an uprising will begin among the English speaking Scots who with a nudge and a wink from South of the Border will secure civilised Edinburgh and move west to protect the nuclear submarine bases. Thus annexing the southern part of Scotland an alternative is a full scale invasion to protect our country's interests.

Okay - to see the SNP as a hard right party is a pretty wild misreading of the situation. The SNP are pretty mild social democrats for the most part and are arguing for increased immigration: not the usual tact for the hard right? The more general Yes campaign has tended to be very progressive and outward looking; if you want to see which way the racists are voting, it's not yes...

The SNP have run an overtly racist campaign I didnt say they were hard right or left. If the SNP were English they would be, rightly, decried as nationalistic little Englanders who wanted to turn their backs on the World. If the Scots think they are better off alone then fine but to suggest that they are somehow the victims of an oppressive one party English system is plainly nonsense.

Quite - both sides are broad churches and have a lot of, em, distinctive opinions harboured in their midsts. I agree the SNP aren't very radical (though I'd say keeping the Queen is a little more don't frighten the horses piece of Real Politik than any grand loyalty) but the reason for Yes's success isn't so much to do with the Yes campaign proper as the grassroots campaign which is probably just as sceptical about the SNP as anyone. (I go back to Scotland quite a lot, and I don't think you get a feeling of that all down here)

Vote Yes - Full independence will allow complete autonomy and flexibility albeit with the loss of influence, income and collective bargaining power and some big short and long term risks concerning prospects for standard of living and growth etc.

Vote No - Accept a little less control compared to full independence in return for remaining part of a bigger, more stable and influential club.

Are Scotland's aspirations really that different from the rest of the UK and can they realistically achieve them through independence given the associated risks?In retrospect perhaps the Devo -Max option should have been on the vote from the get go. There is a theory that Alex Salmond may even have preferred it - increased power without the risks... Does the SNP become superfluous if and when independence is achieved?

If you cant see the anti Englishness of this campagn (I guess Salmond gets it from his Dad) then you cant be looking very hard. The SNP, UKIP, AfD, Front National are all symptoms of the same problem, a perception that an aloof elite are working against the interests of the majority. Farage, Le Pen, Salmond et al's greatest trick has been to suggest that they are different and that their simple ill defined promises will be an imprrovement since the root cause of people's problems is someone foreign, the English, the Europeans etc etc.

I honestly don't think a deco max option is a question for Scots alone. There is a lot at stake for other parts of the union and they would need to be involved too. That is why the concessions given by the three main parties are going to cause a lot of trouble if the no vote is returned...

The SNP are a centre-right party, who have opportunistically adopted some of the rhetoric of the left to broaden the appeal of independence and differentiate themselves from the hated Tories. Can't blame them for that strategy, but they are not social democratic - they are for low taxes, middle class perks (free university tuition) and keeping as much oil as possible, so that the UK's wealth is not redistributed across the country.

Of course they should vote yes. The very fact a london blog which is rarely more than a cheerleader for house price rises thinks they shouldn't, shows why it is important for.scots that they leave. Scotland shouldn't remain in the UK just because we want to live in a monarchy with a massive trade deficit, complete with housing bubble and bloated city.

Mmmmm, yes and no. It's a definitely a side to the SNP, but there are also plenty of left-wing people in it as well who see it as the best way to achieve those goals (cf. Common Weal, National Collective, Radical Independence); similarly there's quite a lot of people in the Labour party who, in a functioning political system, would be in a centre-right party.

Does discus work better on apple or.something, because I cannot reply on my android phone.

@monkeyboy I will yes, I live in ladywell. But they wil have the prospect of abandoning the monarchy later. They wil have less.deficit as they get control over their oil. And they get to avoid the prospect of being screwed over by an increasingly austere london government.

I'm not lying, I'm adding balance. You point out costs, I think they are worth it for Scottish people. You have selected the scariest costs, put forwards repeatedly by people keen to maintain the status quo.

The blog, which I do read and think is good, does obsess about house prices in London. Our government allows house prices in london to over-inflateto paper over the current account deficit and hopefully support the economy until the general election. The housing bubble- and perhaps the EU- is threatened by Scottish independence because of the costs the blog outlined.

Thus, a london blog regurgitating all the scare stories about Scottish independence reflects the fact that their economy is used to bolster London house prices.

I know it is an issue of broader relevance, but the fact it is all about the economic s first in this post I think means my comment was fair enough

Except their debt/gdp will be almost exactly the same as it is now. The oil (I still think the rest of the UK supported by the US who will not want a new precedent set in such matters will contest how much a brand new country will be able to claim especially of exisitng fields) will be a variable source of income for a Scottish Treasury (so presumably locked up in a fund so to smooth its effect although the SNP appear to have alloacted these funds several times over) and given Scotlands demographics and worse growth and productivity outlook will have to cut state spending by more than the rUK. In time Scotland may well be OK but they will enjoy a huge credit crunch and probable severe recession over the next few years. I dont care either way, from my point of view all the Scots will deprive me of are 40+ Labour MPs which I am pretty sure the English can do without.

1. I occasionally write stories about house prices. Never in praise of rising prices. 2. House prices matter enormously, for all sorts of reasons. They are a key economic dynamic - reporting the facts is therefore important3. The London housing market is the product of a much more complex set of forces than government simply "allowing a bubble" - it's about demographics, global investment patterns, the legal system, growth rates, etc, etc4. "The housing bubble is threatened by Scottish independence". No, it really isn't. If anything, it might inflate it further as banking returns to London.5. Not "regurgitating scare stories" so much as calmly presenting an honest assessment of the situation. 6. Shooting the messenger is a worrying characteristic of the independence debate. 7. As I say, this may well be a price worth paying. What price freedom?

I'm under the impression that productivity is low because of under-investment, rather than laziness. That could be improved by more control over where they spend their money. Also, I think the legal status of most of the oil would be pretty straightforwards. Otherwise, why else did england annex a load of.it in 1999 http://newsnetscotland.com/index.php/scottish-news/9713-former-ambassador-reveals-labour-role-in-annexation-of-scottish-watersThat isn't to say the government wouldn't contest it at great expense and take as long as possible.

I do think all these issues will lead to a comfortable 'no' win, though. I think the UK economy is faced with uncertainty and probable recession regardless of outcome. It's just a case of when. But the repetition of the uncetainty around a yes vote wil make people vote more conservatively than they tell the pollsters. Like 92, and will lead to similar regret within years.

Well, it threatens.the UK economy, rather than a housing bubble directly. Fair enough.

I'm not shooting any messenger. You started a blog trying to provoke discussion, but now say any critical discussion of the issues is shooting the messenger. I think the blog adticle's existence is weak evidence that the economic consequence of independence threatens the london centric economy. This debate is central to the whole matter. Not a case of nationalisms or shooting anyone. I was being glib, rather than trying to offendhttp://www.zerohedge.com/news/2014-09-15/why-scotland-has-all-leverage-one-chart

if a population wants to be a separate country than my opinion is irrelevant, and rightly so but the SNPs position is that it WILL use the £ whether its allowed to or not. In one scenario the BOE will extract a slightly lower price but both scenarios will mean that a fundamental element of Scotland's governance will be dictated in accordance to the most advantageous outcome of a foreign power. Oil, Oil, Oil....say Scotland. A limited resource that no one country, let alone scotland, controls the price off.

i get the flag waving business but just dont get the economics. I hope it works out for purely selfish reasons but i dont believe that the apparent 'bad deal' Scotland gets will be worse than a post 'yes' world. Greece is being crucified by the Euro bloc and that was when they were a fully paid up member of the group. Scotland will use the £ i suspect but the rest of the UK will benefit, anyother outcome would be charity and no party will be able to offer that.

I've not said it's invalid. Write about what you want, it's a blog. It's perfectly valid for a blog that writes a lot about house prices in london (among other, more interesting things) to write about the scottish referendum. Also, it's fine for such a blog to focus purely on the short-term effects on shares, pounds etc, without giving any consideration to the role an independent scottish government would have on the situation. Or the long-term prospects for an independent scotland (which, as pointed to above by stiglitz, is dependent on what sort of government they may go on to choose)

But in being selective with what you post, in highlighting only one part of the whole argument, it is scaremongering. Saying "I'm only telling the truth" doesn't mean you're not scaremongering, because it's not telling the broader context.

Fundamentally, I reckon the scottish people know what's best for them. If the economics don't stack up, yet they vote yes, I suspect it means those of us in the capital have overestimated the benefit the majority of scottish people get from the status quo.

And yes, oil is not a sound basis for an economy in a deteriorating planet, be it the UK's or Scotland's economy. BUt it's there, and they'll use it.

If you read the article, you'd see it's part one. I'm covering the rest in parts 2 and 3.

And haha, fair enough on zerohedge. But it's a bit like saying 0.1% of scientists doubt man made climate change, so the jury's still out. There is consensus that independence will be costly in the short to medium term and that it is not in UK interests to keep the pound. Zerohedge's charts do not convince otherwise.